The Time Value Of Money

One well-known fact of economic life is that a dollar received today is worth
more than a dollar received a year from now.

Time and Money

The relationship between time and money provides the foundation for virtually
every financial decision you will make. Whether you are saving money for a future
event or considering a loan to pay for a current financial need, you will be
greatly impacted by the time value of money.

This is true for two main reasons. First, a dollar received today can earn
interest or appreciate in an investment account, thus increasing it's value
with time. Second, inflation impacts the value of your dollar. As the price
of goods increases with time due to inflation, the value (or purchasing power)
of your dollar decreases.

Time Value Tips

Whether you are saving for retirement or a down payment on a home, college funding
or dependant care needs, you will be greatly impacted by a few simple time value
tips.

Time Value Tip #1: The longer you have to prepare, the less your objectives
will cost. Assuming that you are able to invest your savings and earn a positive
return, you will always be better off saving for your goals in advance. Not
only will your savings earn interest, but the interest you earn will also begin
to earn interest. This is called "compounding" and was referred to
by Albert Einstein as the "ninth wonder of the world."

Time Value Tip #2:The higher the interest rate you are able to secure
on your savings, the faster your money will grow. Generally speaking, the amount
of risk you are willing to take on your investments may help determine your estimated long
term rate of return. The longer you have to save for your goals, the more risk
you take on your investments, and the greater potential rate of return you should
expect. There is no guarantee that taking on more risk will lead to higher return potential.

Time Value Tip #3: It is usually better to postpone paying taxes on
your investment proceeds. When you have the choice, you should usually choose
to delay paying taxes on investment proceeds as long as possible. This is because
as long as you have your investment's growth in your hands, you can continue
to earn more interest on that potential for growth (see "compounding" above.) Once
you pay the taxes, you will never earn interest on those lost funds again. One
way to postpone the payment of taxes is to invest in "growth" oriented
assets, as opposed to interest oriented assets. Another is to use qualified
retirement plans whenever possible. There is no guarantee any objective will be met.

Time Value Tip #4: Factor inflation into your long term plans. When
preparing for long-term financial objectives, you must factor inflation into
your plan. Planning for such
cost increases will help ensure that your saving level is sufficient to meet your
objectives.

Material discussed is meant for general illustration and/or informational purposes
only and it is not to be construed as tax, legal, or investment advice. Although
the information has been gathered from sources believed to be reliable, please
note that individual situations can vary therefore, the information should be
relied upon when coordinated with individual professional advice.

This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.